I am wondering about putting in our basket of bonds and stocks a fixed income investment (CPD) of prefered shares, do you place this etf on the side of fixed income or do you place it on the equity side of the portfolio. I am trying to get to a 65 / 35 split. Also what's your thoughts about this etf being suitable for a conservative type of investment for a retired couple. Thanks!
Claymore Prefered Shares (CPD)
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Preferred shares, in my opinion, are not replacements for a fixed income instrument but they do make a good addition to a conservative portfolio when used in your non-registered accounts to take advantage of the dividend tax credit.
If your asset mix is 65% fixed / 35% equity I would limit exposure to preferreds at 10%. Most issues, especially a CPD, don't have end dates which doesn't work well for individuals such as yourself who are retired and might need access to funds. You can't build the same type of properly laddered portfolio with prefs as you can with bonds and GICs.
Also look at the exposure to financials in the CPD, 84% ... something to think about!
If your asset mix is 65% fixed / 35% equity I would limit exposure to preferreds at 10%. Most issues, especially a CPD, don't have end dates which doesn't work well for individuals such as yourself who are retired and might need access to funds. You can't build the same type of properly laddered portfolio with prefs as you can with bonds and GICs.
Also look at the exposure to financials in the CPD, 84% ... something to think about!
If you are looking for Preferreds that act like fixed income instruments, you could consider the many rate reset preferred that have been issued recently. They are structured such that they will almost certainly be redeemed after 5 years, so they resemble a 5 year bond. But payments are in tax-advantaged dividends. Recent examples are SLF.PR.F BAM.PR.P CCS.PR.D RY.PR.Y
I agree with AdamW that funds with no end-date don't work well for retirement accounts.
I agree with AdamW that funds with no end-date don't work well for retirement accounts.
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I bought this a year ago for a taxable account, thinking it would be "bond-like" in risk, "tax efficient" like dividends, and diversified like most ETFs. Turned out to be bad timing and as earlier poster points out, was too heavy in financial stocks. The resulting fall would not have been welcomed by conservative retiree types but it has recovered somewhat in recent months, along with the rest of the market.
www.wealthyboomer.ca
www.wealthyboomer.ca
I would say that preferreds are an excellent investment IF they are bought when attractively priced. they were slaughtered like everything else in the autumn so I was happy to pick up quite a number of perpetual discounts in February with an average 7% yield (equivalent to an approx. 9% GIC at your marginal rate). They have all appreciated, a couple by over 20%, and I'm still getting that tax efficient dividend. John Hymas who is probably the most knowledgeable on their features recommended BNA.PR.C (SplitShare) in his May 8 monthly newsletter, with a hard maturity of $25 in 2019. It is currently around 15 bucks with a 7% yield. Of course there are risks: Brookfield going bankrupt, interest rate risk etc.
If you have your doubts and prefer a fund, then Hymas has his own which compares favorably with Claymore.
If you have your doubts and prefer a fund, then Hymas has his own which compares favorably with Claymore.
I do not believe in asset allocation - but rather asset class rotation - to get the highest return within my own tolerance for risk. After I sold all common stocks last year, I sat in cash and then reinvested early Dec - all in preferred shares.
Most preferred owners are sold their positions from IPOs at face value. Those are a receipe for disaster. Buying them at a discount with an opportunity for capital gains due to projected drops in yields, is a good idea. A big problem with the ETF is that there is no way of knowing from their disclosure, what capital loss/gain you should include in your valuation. You don't know what the 'FaceValuePerUnit' is. Nor is there a 'YieldToPresumedCall' calculated. All you have to go on is the current yield - which tells you nothing.
A lot have now recovered to close to face value, so they have little upside left. But IMO the downside risk from common stocks far outweighs that little problem.
The ETF is certainly more liquid than individual issues. That can be quite important in certain circumstances, but I don't foresee those right now. Buying individual issues REQUIRES you to analyse the prospectus and appreciate what is there and NOT there.
Learn what to look for and how to predict the share's price at:http://members.shaw.ca/retailinvestor/preferreds.html
Most preferred owners are sold their positions from IPOs at face value. Those are a receipe for disaster. Buying them at a discount with an opportunity for capital gains due to projected drops in yields, is a good idea. A big problem with the ETF is that there is no way of knowing from their disclosure, what capital loss/gain you should include in your valuation. You don't know what the 'FaceValuePerUnit' is. Nor is there a 'YieldToPresumedCall' calculated. All you have to go on is the current yield - which tells you nothing.
A lot have now recovered to close to face value, so they have little upside left. But IMO the downside risk from common stocks far outweighs that little problem.
The ETF is certainly more liquid than individual issues. That can be quite important in certain circumstances, but I don't foresee those right now. Buying individual issues REQUIRES you to analyse the prospectus and appreciate what is there and NOT there.
Learn what to look for and how to predict the share's price at:http://members.shaw.ca/retailinvestor/preferreds.html
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@leslie: Is the retailinvestor.org your website? I spent a few hours on it yesterday. Excellent!
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